Financing a car

Financing a Car is an Important Part of Buying

Buying a car is exciting, and it’s easy to get so wrapped up in the adventure that you completely overlook issues concerning financing. A car will be a major expense for however long you own it, so it’s worth taking a little extra time on the front end to get organized before you visit a dealership.

Get pre-approved for auto loan finance

Before you do anything else, apply at Car Deal Expert for a car loan pre-approval. There’s no cost or obligation, and once you’re pre-approved, you’ll know exactly how much you can and should spend. Getting pre-approved is the starting point. Once you’ve done that, consider your options carefully and get your ducks lined up before you head out to the dealer.

Keep your options open

Too often, shoppers set their sights on one particular vehicle to the exclusion of all others, including comparable models that may be better values. This can be a problem if the car you’re focusing on is impractical for your needs and lifestyle (think a four-wheel-drive Jeep in the city or Porsche 911 on a rough country gravel road). It can be an even more serious problem is the car you have in mind is impractical for your budget (think BMW M6 for someone who’s underwater on a home mortgage).

Hot cars are fun, but don’t let fun or hotness be your only criteria. In addition, fixating on one particular model leaves you little room to negotiate with salespeople who will be quick to figure out that you want that car and no other. You’re likely to end up with a better deal and a more suitable vehicle if you start negotiations with your mind open to more than just one vehicle.

Research your choices

Once you’ve narrowed your choice a few different models, it’s easy to check the safety and repair records of each model online. Look for reviews by journalists and current owners, too. Take a little time to read about the options available for each of your choices and decide ahead of time which options you really want or need.

Buy the right amount of car

Many car buyers are lured by low monthly payments to their great detriment. An affordable vehicle will have manageable monthly payments, but a low monthly payment stretched over a long loan term does not make a vehicle affordable. Experts recommend that you not spend more than 15 percent of your after-tax income on car payments, but don’t let that be your only consideration. If you take an extra-long loan term to pay off the vehicle, at some point you’ll be upside down on the loan, meaning that the vehicle is worth less than what you owe. To avoid this situation, decide exactly how much you can afford to pay for a car as well as how much you can afford to pay per month, before you visit a dealer. All cars, especially new cars, depreciate quickly, so try to stick to a three-year loan term.

Compare dealer incentives to online auto loan financing

Dealer incentives can sound tempting, especially the promise of zero-percent financing. Remember that dealers typically markup financing rates for added profit, and you can almost always get a better deal from an independent lender. Nothing comes for free, so don’t be fooled by offers of zero-percent financing. Your credit history has to be stellar before you can qualify for “free” financing and even if yours measures up, the lower the finance rate a dealer offers, the less you’ll be able to negotiate downward on a price. Typically the lower the dealer financing, the higher the contract price and the larger the required down payment.

No matter what kind of credit you have, it’s best to examine your online options and be prepared with a pre-approved loan. You’ll have much stronger purchase-price negotiating power if you do. If a dealer tells you that it can beat your pre-approved loan, make sure you’re not comparing apples to oranges. Always refer to the Truth-in-Lending statement to see how high the APR is, how long the term is, and the total amount you’ll pay over the life of the loan.

Negotiate upward from the invoice price

Savvy shoppers ignore the manufacturer’s suggested retail price (the sticker price) when they negotiate the price of a new car. Instead, they do their comparison-shopping with invoice prices. Remember that base price is the price of the car (including standard equipment and factory warranty) without options. The Monroney Sticker Price which must be displayed on the car window according to federal law discloses the base price, the manufacturer-installed options, the manufacturer’s transportation charges, the manufacturer’s suggested retail price, and fuel economy ratings.

The Dealer Sticker Price is usually shown on a supplemental window sticker, and is the Monroney Sticker Price plus dealer-installed options. Rather than negotiate downward from the Dealer Sticker Price, ask to see the invoice price, which is the amount the dealer paid to the manufacturer, including transportation charges, and negotiate upward from this.

Forgo unnecessary extras

Dealers have numerous charges and options designed to boost the price of a vehicle. Some options can’t’ be avoided: sales tax, destination charges, and licensing, for example. Others, such as advertising fees or administration charges, are matters of agreement. So don’t just blindly agree to everything the dealer sets before you. Rust-proofing, upholstery stain-proofing, and the etching of vehicle identification numbers on windows to deter theft are examples of extra charges that are subject to negotiation. In truth, if you want these kinds of things you can usually have them done less expensively somewhere else.

Take a leisurely test drive

A quick spin around the block is not a test drive. Before you go to the dealer, make a checklist of the features you want to test or verify when you drive the vehicle, along with a list of questions for the sales person. Be thorough about your list, and take your time with a test drive. A test drive should take at least half an hour.
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